The Road Ahead in 2015:A public policy and regulation roadmap for in-house counsel

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Presenters

Darry SragowPartnerPublic Policy and Regulation

+ 1 213 892 2925darry.sragow@dentons.com

John RussellPrincipalPublic Policy and Regulation

+1 202 408 6392john.russell@dentons.com

Megan DelanyPrincipalPublic Policy and Regulation

+1 202 408 9169melanie.delany@dentons.com

January 14, 2015

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California Political Landscape

• Registration

• Voter Attitudes

• Democrat 43.4%

• Republican 28.4%

• Other 28.2% (No Party Preference and Third Parties)

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Electoral Drivers

• Term Limits (1990)

• Citizens Redistricting Commission (2008, 2010)

• Open Primary (2010)

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CA Policy Focus

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Governor's Agenda

• Sustainable Budget

• Education

• Prison Sentencing and Reform

• Transportation, including High Speed Rail

• Climate Change

• Flat tuition for UC students

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New Leadership in Assembly and Senate

• Senate President pro Tem Kevin De Leõn

• Minority Leader Bob Huff

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• Speaker of the Assembly Toni Atkins

• Minority Floor Leader Kristin Olsen

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Legislation Introduced / Process & Path to Adoption

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California State Government

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New Laws in 2015

• Mandatory paid sick leave

• Privacy/cyber-data breaches

• Ban on single-use plastic bags

• Arbitration

• Yelp bill

• Film tax credits

• Insurance/ride-sharing companies

• Professional sports teams

• Tribal development

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Meanwhile,In the nation's capital…

January 14, 2015

Source: National Journal Research; CNN Election Center; Associated Press; NBC News.

Republicans Win Solid Majority in Senate

Analysis•Having won most of this year’s competitive races, Republicans secured 54 Senate seats, flipping the Senate from blue to red•A GOP win in Louisiana was announced on December 6, 2014•Since Republicans expanded their majority to 54 seats, they will have an easier time passing legislation in the Senate because they will need fewer Democratic defections to overcome filibusters (which require a 60 vote supermajority)

Control of the 113th Senate (2012-2014)

Democratic

Republican

Independent

Control of the 114th Senate (2014-2016)

Total SeatsDemocrats: 44Republicans: 54Independents: 2

44 54

Total SeatsDemocrats: 53Republicans: 45Independents: 2

53 45

2 2

Source: National Journal Research; CNN Election Center; New York Times.

Republicans Win Record Majority in House

Analysis• Republicans won a total of at least 246 seats in the House, their largest majority since 1928• An expanded GOP majority in the House means that Speaker Boehner will have an easier time passing

legislation in the House without Democratic support, and Republicans will also have an easier time holding on to their majority in future elections

Control of the 113th House (2012-2014)

Democratic

Republican

Vacant

Undecided*

Control of the 114th House (2014-2016)

AK

Total SeatsDemocrats: 188Republicans: 246

Undecided: 1

188 246

* Refers to AZ-2 race, in recount as of 12/8/2014

1

AK

Total SeatsDemocrats: 199Republicans: 233

Vacancies: 3

199 233

Source: National Journal Research, 2014; RealClearPolitics, 2014.

Few 2014 Senate Races Were Decided by a Close Margin

Analysis• Only 5 Senate races (AK, VA, NC, NH, CO) were decided by a margin of 5% or less; all were held by

Democratic incumbents, and 3 were Republican gains• These results do not necessarily inform 2016 projections; a different set of seats will be up for election, and

presidential election turnout is both higher and demographically distinct from turnout in midterm elections• In addition, Senate contests, although increasingly nationalized, are still in many ways idiosyncratic, often

dependent on local politics and voters’ opinions of specific candidates

28% 1%

37%

2%

16%

8%

30%

16%

13%

10%

10%

12%27%

40%

31%

19%

11%

3%

55%

18%

21%

9%

17%

23%100%*

34%

11%

NH 3%MA 24%

RI 41%

NJ 13%

DE 14%

AK

HI 42%

Margins of Victory in 2014 Senate Elections

3%

Margin of >5%, Dem

Margin of 0-5%, Dem

Margin of 0-5%, Rep

Margin of >5%, Rep

No Election

*Jeff Sessions (R-AL), ran unopposed

Source: National Journal Research; AP.

Only 5% of House Races Were Decided by a Close Margin

Analysis• 22 House races were decided by a margin of 5% or less; 14 of those races were won by Democratic

candidates, while 8 were won by Republican candidates• California accounted for an unusually high share of competitive races this year: seven House races in

California were decided by a margin of 5% or less, and all of them were won by Democrats• Because so few districts produce competitive races, some observers predict that the GOP will retain their

majority in the House until districts are redrawn following the 2020 census

Margins of Victory in 2014 House Elections

AK

Margin of >5%, Dem

Margin of 0-5%, Dem

Margin of 0-5%, Rep

Margin of >5%, Rep

January February March April May June

Timing Unknown

Republicans Will Face Budget Fights In Early Months of 114th Congress

16Source: National Journal Research 2014. For issue-specific sources, see issue-specific slides that follow.

Prospective Items on Legislative Agenda in 114th Congress

Immigration: With the passage of the “CRomnibus” in the lame duck, Congress may threaten to shut down DHS over Obama’s executive action

Debt Ceiling: Watch for confrontation over spending & issues R's could attach to a debt ceiling deal

Fossil Fuel: GOP is pushing for legislation approving Keystone XL, but is unlikely to override a presidential veto

Online Sales Tax: Not a high priority, but lobbying efforts from states and small businesses may push GOP to allow for an online sales tax

Affordable Care Act: Barring more extreme action (full repeal or major overhaul) in the wake of a Supreme Court decision eliminating federal exchange subsidies in King v. Burwell, medical device tax repeal and smaller regulatory changes to coverage requirements are possible

Highway Trust Fund: Republicans will likely change spending levels and attempt to eliminate the gas tax in a Highway Trust Fund renewal

Doc Fix: Expect another short-term fix or a long-term plan paid for primarily through deficit reduction; conservatives may push to tie ACA reforms to a renewal

No Child Left Behind: GOP Senators want to push for less federal involvement in school performance evaluation and move more responsibility to states

Foreign Policy: A confirmation battle is expected over the nomination of Ashton Carter for Secretary of Defense; Republicans want confrontation with Iran; President Obama’s actions to normalize relations with Cuba will likely set up battles over confirming an ambassador and/or funding an embassy

International Trade: The Republican Senate will likely grant Obama Trade Promotion Authority to sign the TPP and TTIP trade agreementsAppropriations: A regular-order budget is possible, but another CR is a strong possibility; some GOP members have hinted at reconciliation

FCC/Net Neutrality: Republicans may restrict the FCC’s authority or withhold its funding if it implements more expansive regulations

Export-Import Bank: Republicans are split on whether the bank should expire; it may or may not be reauthorized

Tax Reform: Movement on comprehensive tax reform remains unlikely in a Republican Congress, but corporate tax reform is possible

Potential Actions in 114th Congress

Immigration

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• In the 113th Congress, the Senate passed immigration reform legislation, but it stalled in the House

• Going into the 114th Congress, political interest in immigration is high due to President Obama’s memorandum providing deportation relief and access to work authorization to certain undocumented immigrants

• USCIS, the agency responsible for carrying out Obama’s deportation memorandum, is funded primarily by application fees currently outside of the scope of congressional appropriation

• When the CR for the Department of Homeland Security expires in March 2015, Republicans plan to attach a provision preventing money collected from application fees from going to President Obama’s deportation relief program

• It is unlikely, however, that a filibuster-proof majority in the Senate will support the bill, so it is possible the memo will be upheld with few or no changes

Potential Actions in 114th Congress

Tax Reform

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• Despite the efforts of lawmakers from both sides of the aisle to reform individual and corporate tax codes, fundamental differences between the two parties’ visions of tax reform have prevented a workable compromise from taking shape

• Comprehensive tax reform remains unlikely in a Republican Congress; however, more news of corporate tax inversions could put pressure on Congress to reform the tax code in some form

• Republicans could use the once-a-year reconciliation process to bypass a filibuster and pass comprehensive tax reform (much like how the ACA was passed), but this would likely prompt a veto threat from the White House

• Comprehensive reform efforts are unlikely to succeed due to divergent priorities among the parties; for instance, while both sides generally agree on simplification of the tax code and some reduction of corporate tax rates, Democrats have advocated for a minimum tax burden on high earners, while Republicans have maintained a push for reduction of individual rates on top earners

• If Congress passes a legislative fix to inversions, expect Republicans to tie it to other GOP priorities, e.g. lower corporate rates

• House Ways and Means Chairman Paul Ryan (R-WI) and Senate Majority Leader Mitch McConnell (R-KY) have suggested corporate-only tax reform as a compromise position

Potential Actions in 114th Congress

International Trade

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Sources: Vicki Needham, “House Republicans Opposed Fast-Track Authority,” The Hill, November 12, 2013; Zach Carter, “Trans-Pacific Partnership Talks Stir Bipartisan Opposition,” Huffington Post, November 11, 2013; Vicki Needham and Laura Barron-Lopez, “McConnell Says Obama ‘Born Again’ on Trade Agenda,” The Hill, January 7, 2014.

• Two trade agreements, the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), need authorization from Congress in order to move forward

• The administration is seeking Trade Promotion Authority (TPA) to negotiate and sign trade agreements with limited allowance for Congressional intervention

• Top Republicans, including Senate Majority Leader Mitch McConnell (R-KY) and Senate Finance Committee Chairman Orrin Hatch (R-UT), have voiced their support for TPA; both highlighted the issue as an area for cooperation with the White House

• Neither the White House nor McConnell have indicated when they would push for a vote on TPA, but such a measure is nonetheless widely expected to pass some time in 2015

• Congressional Democrats are divided over TPA and a minority of Republicans oppose TPA because they are uncomfortable with granting the administration additional powers, but they are unlikely to prevent TPA passage

Potential Actions in 114th Congress

No Child Left Behind

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• In the more than a decade since the law’s passage, the bill’s testing provisions have drawn both favor (civil rights groups, for example, support the tests’ highlighting of racial and class disparities in achievement) and ire (from teachers’ unions, who feel that sanctions harm teacher job security and that standardized test preparation limits their curricula)

• The bill is likely to see a reform effort in the 114th Congress

• Rep. John Kline (R-MN) and Sen. Lamar Alexander (R-TN), the chairmen of the House and Senate committees responsible for education issues, are in the process of drafting a reauthorization of NCLB with a focus on allowing states to opt in to taking federal education money and allowing states to determine evaluative criteria for their own education systems

• Democrats have indicated a willingness to reform the law, favoring changes that would lead to less frequent testing and monitoring and less onerous sanctions on underperforming programs

• President Obama has said that he is open to reform, but will veto a bill that rolls back federal testing completely

Potential Actions in 114th Congress

Doc Fix

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• In 1997, Congress created the Medicare Sustainable Growth Rate (SGR) to tie the Medicare budget to the economy’s growth

• However, health care spending soon outpaced the economy, and since 2003, Congress has passed 16 short-term “doc fixes” to stabilize provider payments; the current fix expires on April 1, 2015

• Short-term doc fixes are temporarily cheaper and, as a result, more politically palatable than a permanent fix

• If Congress cannot pass a permanent fix, expect another year-long patch in March

• The Republican plan for a permanent doc fix would be paid for mostly by deficit reduction, rather than revenue increases

• It is possible that a temporary doc fix extension may spark a political fight; Republican leadership used a procedural vote to pass the last doc fix bill by voice vote with primarily Democratic support, but conservative anger over this strategy in the 113th will likely mean passage of a short-term fix won’t happen again without significant conservative backing or a floor vote with Democratic support

• In order to gain conservative support, a permanent or temporary doc fix extension, which Obama may see as too critical to veto, may be used as a vehicle for ACA reform

Potential Actions in 114th Congress

Highway Trust Fund

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Source: Sid Salter, “Highway funding can kicked down the road, but not very far,” Gulf Live, September 3, 2014; Michael Doyle, “Local California officials look for aid on Capitol Hill,” Hilton Head Island Packet, September 10, 2014; Keith Laing, “Boxer to GOP: Focus on Highway Bill, Not Keystone,” The Hill, January 7, 2014; Amy Harder, “Senate Republicans: Higher Gas Taxes Are On The Table,” The Wall Street Journal, January 8, 2014.

• In the 113th Congress, conservative opposition to the federal government’s role in road construction raised the possibility that the Highway Trust Fund would go unfunded

• However, a short-term funding compromise pushed this issue into 2015

• When the Highway Trust Fund is depleted again in May 2015, expect Republicans to propose eliminating the gas tax and to negotiate new funding mechanisms and levels

• Some transportation advocates have suggested that falling gas prices could make it easier to increase the gas tax because consumers would be less likely to notice the tax amid falling prices

• Conservative critics argue that consumers should be allowed to keep the savings generated by lower gas prices; Senate Environment and Public Works Chairman Jim Inhofe (R-OK) indicated that a gas tax increase was on the table, but did not endorse this approach

• Some conservative lawmakers and interest groups would prefer to end the program and turn over responsibility for highway infrastructure to state and local governments

• Nonetheless, the Highway Trust Fund enjoys bipartisan support, and lawmakers are more likely to renegotiate funding mechanisms or offer cost offsets than scrap the program altogether

Potential Actions in 114th Congress

Affordable Care Act

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Source: Sam Stein, “Rob Portman: GOP-Run Senate Would Vote on Obamacare Repeal,” Huffington Post, September 11, 2014; Daniel Newhauser, “McCarthy Says Sept. Agenda Will Confront Obama, Senate Democrats,” National Journal, September 4, 2014; Terry Connelly, “Obamacare Dominoes: If Federal Subsidies Fall at the Supreme Court, so Do the Individual and Employer Mandates – Game Over!” The Huffington Post, November 18, 2014; Roger Parloff, “Supreme Court’s New Obamacare case could be the next Bush v. Gore,” Fortune, November 10, 2014.

• The Affordable Care Act (ACA) has been a political lightning rod since its introduction in 2009

• Since then, many Republicans have been elected on a platform of amending or repealing the law

• Public opinion of the law has improved since its implementation, however, and the issue been less politically prominent as a result

• House Majority leader Kevin McCarthy (R-CA) outlined several conservative legislative ideas for ACA reform in a memo in August 2014, such as changing the definition of full-time worker and giving insurance policy holders more options to “keep the plan they have”

• These options that could action in the 114th, but will likely face a presidential veto if passed

• The outcome of a Supreme Court case, King v. Burwell, may throw the Affordable Care Act in jeopardy; if the plaintiffs win, then subsidies that allow low-income individuals to buy insurance in states that use the federally-established exchange will no longer be available, which will set off a chain of policy impacts that may make the law at best unenforceable and at worst make health care costs prohibitively expensive

• A ruling for the plaintiffs would give Republicans a massive bargaining chip in repeal or reform negotiations with the White House; a ruling on the case is expected in June

• Even without a court ruling, a symbolic full repeal bill is possible; however, it is unlikely that Republican leadership would make either the debt ceiling or the budget conditional on a full repeal in absence of a ruling in King

• Sen. Rob Portman (R-OH) has suggested a separate repeal of the medical device tax, a proposal with bipartisan support

Sources: National Journal Research; GovTrack.us; StateNet.com.

Every State Legislature Is More Productive Than Congress

Analysis• As measured by the percentage of bills introduced that were enacted as law, every state legislature was more productive than Congress in 2014• The least productive state legislature, Minnesota, enacted 5% of all introduced bills, which was still higher than Congress’ 3% rate• Although comparisons are difficult because not all bills are of equal importance, these percentages illustrate the relative ease with which state legislatures pass laws compared to Congress• Whereas Congress has experienced years of gridlock and divided government, many state governments are unified under one party and have simpler procedures for drafting and passing legislation

OH

WV VA

PA

NY

ME

NC

SC

GA

TN

KY

IN

MIWI

MN

IL

LATX

OK

ID

NV

OR

WA

CA

AZNM

CO

WY

MT ND

SD

IA

UT

FL

AR

MO

MS AL

NE

KS

VT

NHMA

RICT

NJ

DEMD

AK

HI

Percentage of Bills Enacted as Law in Most Recent Legislative Session

AK

0-10%

10-25%

25-50%

>50%

Congress Enacted 3% of Bills Introduced

in the 113th Congress

Legend

2016 Presidential Hopefuls

Month Day Year 25

26

27

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Priority Issues on the Hill - Republican Governance not Gridlock

• Cybersecurity

• Limited Immigration Reform

• Tax Reform

• Budget Deal

• Transportation

• Debt Limit

• Trade Deals - TPP and TTIP

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The Future

• Boxer seat

• Feinstein seat

• President

January 14, 2015

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